Sebi faces hurdles in ponzi scheme money recovery
The Securities and Exchange Board of India (Sebi) has been facing issues in recovering the amount invested by people in unauthorised collective investment schemes (CIS).
Special courts were to be set up for swift adjudication in such cases. So far, only four have been constituted According to sources, these courts have received 700 cases from various other criminal courts, all pending.
One of the primary reasons for such a delay is that a majority of unauthorised CIS schemes have deployed the money in purchasing land or property in various parts. As land is a state subject, it comes under state and local laws. For instance, laws on land ceiling, agricultural and tenancy rules, town planning laws and development regulations are administered by various state executive bodies.
“Initiation of enforcement proceedings by Sebi for disposal of land/properties and realisation of monies is marred by operation of local laws and the bureaucratic approaches that come with it,” said Tejas Chitlangi, partner, IC Legal.
In an e-mail response, a Sebi spokesperson said, “Currently, 15 orders against CIS companies are under challenge in the Securities Appellate Tribunal. In all cases, the tribunal has either stayed or directed that no further action, including recovery, be initiated.”
Language barriers also arise due the title and other documents pertaining to such lands being in the local language and proceedings before the land revenue authorities and district courts being conducted in local languages, added Tejas.
“Difficulties in auctioning of assets, especially real estate, in small town is a challenge Sebi is not fully equipped with,” said Sandeep Parekh, founder, Finsec Law Advisor.
Another issue is on verifying of title deeds. “There could be powers of attorney and and other complications with these properties. It is quite possible that some of these owners come up with the objection,” said a real estate consultant, on condition of anonymity. Beside, valuation of each asset is cumbersome. The process takes up to eight months, while some properties need detailed due-diligence and negotiations, he added.
“While Sebi has power to punish the wrongdoers, it may not have power to compensate anyone. To be fair to Sebi, it has passed various orders, though investors do not get their money back and cases keep lingering on in litigation. Also, due to allied proceedings under the State Protection of Depositors Act, Prize Chits & Money Circulation Schemes (Banning) Acts, land ceiling laws, tax and money laundering laws.” said Sumit Agrawal, ex-Sebi official and founder, Suvan Law Advisors, an entity specialising in regulatory affairs.